The upward momentum in M&A activity in Asia established in the first half of 2005 has been maintained, with most countries posting increased full year deal volumes. In fact, a strong third quarter has contributed to a significant increase in the total of announced transaction volumes in the six months to December 2005, compared to the previous six months

North Asia
· Hong Kong GDP growth: 7.3%
· Outlook: Growth in the Hong Kong economy will be dependent on the regional trade boom and the continued growth of investment activities in China

Last year was been a record year for M&A in the Asia-Pacific region. This is very significant given that there was negligible growth in M&A activity in the US. While the Americas and EMEA (Europe, Middle East and Africa) attracted the majority of the deal-doing for 2005, Asia-Pacific is experiencing the largest growth in targeted M&A.

Announced Asian (ex Japan) M&A deals soared from US$108.3bn in 2004 to US$177.6bn in 2005. Deal numbers were also up from 6,509 2005 to 6,585 in 2006.

Roger Denny, a partner and head of M&A, Asia at Clifford Chance in Hong Kong, notes that the Asian M&A market was very active, with a lot of pan-Asian and cross-border deals being done.

"Last year was the busiest year for M&A in the firm since 2000 and there are further indications that this trend will continue throughout 2006," Denny says. He believes the increased activity is due to the economies of Europe and the US remaining strong, as well as the emergence of new markets such as India, which saw a tripling of its deals last year.

Elaine Lo, a corporate partner at Johnson Stokes & Master, also reported an active market where she is seeing a lot of work being done in the utilities, energy and transportation sectors.

A trend that Lo sees more of now is activity in the water industry in China. There has been a drive to clean up the drinking water in a number of Chinese cities. Recent developments have allowed foreign investors to buy into water companies and treatment plants. This is an area that Lo believes will attract continued foreign capital through 2006.

According to Thomson Financial the most active market for M&A (ex Japan) was China once again. China was followed by South Korea and new kid on the block India which saw phenomenal growth in M&A over 2005.

Hong Kong contributed to a strong year with a near-doubling of disclosed deal values to US$12bn on the back of major deals in the telecommunications and infrastructure sectors.

The traditional strength of Hong Kong M&A, the financial services sector deals were again prominent in 2005. Larry Kwok, managing partner of the Hong Kong and China operations of Mallesons Stephen Jaques, said: "Increasingly we will be seeing activity in the financial services and private equity sectors." Mallesons, like many other firms in the region have increased its capacity in order to deal with the increase in the amount of deals they are doing.

In 2005, IPOs in Hong Kong reached a record high of US$18.8bn, smashing the previous record of US$13.3bn set in 2000. This was largely due to the global high for 2005 set by China Construction Bank for listing on the Hong Kong Stock Exchange.

With companies having a surplus of cash from these IPOs, they are able to look towards acquiring other companies or participating in mergers.

The role of private equity funds in M&A during 2005 has once again been significant. This has been facilitated by the arrival of several new private equity funds into Hong Kong. However, CC's Denny believes that it will take some time before these funds find a home. He also says that the level of funds in the market at the moment exceed the amount of deals that are available.

Another interesting development noted by Denny is the emergence of hedge funds and strategic investors as competition to the private equity funds. This is something he believes will continue through 2006.

The major focus of Hong Kong firms remains China. Cross-border work has formed the bulk of deals being run out of Hong Kong. The reasons for this are that there are a large amount of legal professionals and law firms with strong experience in international deals. This along with Hong Kong's status as an arbitration centre enables Hong Kong's legal sector to offer a comprehensive range of specialised services to mainland companies.

Lo notes that more and more Hong Kong companies are targeting so-called 'second-tier' cities in China with their investments. This move allows them diversity and a move away from the crowded markets of Beijing and Shanghai.

All the law firms spoken to in the compiling of this piece, report having increased their M&A team over the past year and perhaps this is the greatest indication of the health of the M&A market in North Asia now and going forward.

Southeast Asia
· Singapore GDP growth: 6.4%
· Outlook: Outbound acquisitions are expected to top levels higher than they were in 2005. PricewaterhouseCoopers predicts most of 2006's M&A deals will occur in the banking industry, ports and airports sectors as well as in telecommunications and property.

M&A deal volume and value of transactions grew significantly over those from 2004. Deal value for the year was US$7,922m (a 70% growth) and the number of deals increased by 11% to 497.

Dilhan Sandrasegara, the head of banking, finance and corporate practice at WongPartnership in Singapore, notes that he had seen a significantly high level of M&A over the last 12 months.

On the reasons behind the continuation of strong M&A activity, Sandrasegara comments: "I think the economic fundamentals of Asia are strong at present. Asian economies are doing well and there seems to be significant availability of money in the private equity funds in the past 12 months. All of this is fuelling M&A activity in the region."

Acquiring an existing company or portion of a company based in Singapore seems to be the ideal way for foreign companies to enter that market without having the hassle of starting from scratch.

Sandrasegara notes that the real estate market in Singapore is buoyant at the moment and he foresees that there will be an increase in the amount of Real Estate Investment Trusts (REITS) taking place in the market.

Singapore is not the only country in Southeast Asia experiencing this phenomenon, with activity in Korea and Malaysia also being reported.

Sin Chei Liang, a corporate partner at Rajah & Tann, says that she can't pinpoint an industry that has particularly high activity in Southeast Asia, although there has been notable interest in the financial and communications sectors.

Inbound M&A transactions have increased considerably; this has been illustrated by the US$1bn acquisition of the hotel arm of Raffles Holdings by the private equity real estate fund Colony Capital.

The financial, real estate and industrial, and consumer sectors registered the highest levels of M&A deal activity in Singapore. Together they comprised 77% of the market.

There has been a continued trend for government-linked entities to seek to acquire overseas assets. Temasek, the Singapore government's investment arm has again proved to be a major player in the Singapore M&A sector.

Some of the most recent deals during the last six months have been the acquisition of a 5.1% stake in China Construction Bank by Asia Financial Holdings for US$1.46bn. Most recently Temasek has again been involved in a high-profile bid in Asia. At the time of writing, it is one of three entities seeking to acquire Korea Exchange Bank. The others include Deutsche Bank and UK banking giant HSBC.

Other big deals during 2005 included:
· United Overseas Bank's acquisition of a 23% stake in Indonesia's Bank Buena in a deal amounting to US$169m. This move made it the bank's second largest shareholder.
· NutriAsia's acquisition of a controlling stake in Mel Monte Pacific international food and beverage company. This deal valued the company at US$415m.

In addition to these examples there are more than 150 Singaporean deals being carried over to 2006 that have yet to be completed. These pending transactions have a combined value of more than US$9bn.

Outside of Singapore, the deal environment is expected to remain active in Malaysia, with financial services the most active. Analysts from PricewaterhouseCoopers also predict increased activity in the Thailand, Philippines and Indonesian markets.

As for trends for the future, Liang says she sees more M&A activity taking place as more emerging economies continue to open up to foreign investment.

With Sandrasegara predicting consolidation in the manufacturing and electronics industries in 2006 and a continuance of big deals being done, it would be safe to say that M&A is alive and well in Southeast Asia